Guns, Butter and your 401(K)

The sheer viral force of hashtag social movements have upended traditional activism at its core. Feeble placard picketing efforts (e.g. ‘Occupy Wall Street’) have been replaced with a digital tsunami of naming and shaming.

The Parkland #neveragain social movement struck quickly and in all directions — wish-washy politicians took cover first followed by corporations. Brands that flew under the radar offering discounts to NRA members while at the same time trying to appeal to millennials/liberals were now forced to disavow and repent.

In the investment world the eye of the storm for corporations has been solely focused on gun manufacturers and the funds/ETFs invested in them.

Blackrock: Hapless Indices and Crisis PR

Irrespective of your view on guns in America, the response by Blackrock to its ownership of gun manufacturers within its ETFs (exchange traded index funds) should make you recoil — this is the nonsensical passive index world where companies transfer blame to generic algorithms rather than own their own decisions.

In Blackrock’s own words:

Index providers are responsible for the construction of their indices [i.e. we’re not on the hook]. As a fiduciary, we have a responsibility to replicate the indices our clients choose to invest in. [we just replicate these mindless indices, don’t blame us]

But don’t worry, they are still a caring corporate citizen and all:

[Blackrock] will be engaging with weapons manufacturers and distributors to understand their response to recent events.

Blackrock, how exactly will this ‘engagement’ effort unfold? They are manufacturers of guns, that’s their business and you’re invested in it. This wasn’t a left field surprise in your index cereal box, same business lines and same guns for a generation. Or perhaps Blackrock is leveraging insights gleaned from their previous Sandy Hook engagement efforts, whatever it is — fuck their crisis PR. They either own their position about guns in their ETFs, or divest — none of this corporate PR waffle.

On the other hand, Vanguard, the other large index holder of gun manufacturers gets the messaging right, no waffle and no apologies. If social change is your thing Vanguard’s not where you park your money:

With 20 million clients, it was unrealistic to cater to such a wide variety of views on pressing social topics, we believe mutual funds are not optimal agents of social change.

‘Safe Space’ University Endowment Funds — Don’t Ask, Don’t Tell

In a study conducted by Bloomberg, only 4 of 42 universities said they had no firearm holdings.

Bloomberg conducted an excellent survey of university endowment funds, of the 42 universities contacted (liberal leaning no doubt) only 4 said they had no firearm holdings. The others declined or didn’t reply.

If the #neveragain movement really wants to take it up a notch on the investment front, pressure the well paid custodians of these endowment funds to disclose any gun manufacturer stocks that are held and ask for the rationale.

The answer will be the same, some bullshit about ‘efficient markets’ and staying invested in the entire market. In reality all they are doing is hugging their mandated benchmarks so they keep their well paid no effort custodian gigs.

Massacres and Gun Stocks

Understanding catalysts for gun manufacturer stock prices is a morbid exercise to say the least. Here are the main recurring scenarios:

It’s quite possible that the #neveragain movement has upended the long-term prospects of the gun manufacturing industry. It’s a full-court press that even the Donald is likely succumbing to. He has advocated expanding background checks, raising age limits, and “taking guns first (from dangerous suspects), due process second” — the first sitting Republican President to talk smack to the NRA.

Beyonds hashtags and Trump, demographics are also a meaningful headwind for the industry. A younger more diverse electorate will be strongly inclined to lean anti-gun.

Source: CNN, Brookings Institute, US Census

ETFs with Guns

It’s worthwhile highlighting the ETFs (table below) that are passively invested in gun manufacturers: American Outdoor Brands (Smith & Wesson) and/or Sturm, Ruger and Co. If you’re invested in a robo-advisor there’s a high probability you own one of these low-cost indices in your asset mix.

Thomas has over 17 years of global institutional investment management experience. At TD Asset Management he was Director of Global Resources and lead Portfolio Manager for over $1 billion of global equities (resource and sustainability funds). Thomas is a Chartered Financial Analyst and has been featured on BNN Bloomberg, CTV, Benefits & Pension Monitor and the National Post.